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As part of recent contract negotiations between a contractor and a hiring corporation in Canada, I've seen an offer to replace expected vacation and holiday payments with an increased hourly rate.

The increase is calculated as (new hourly rate) = (current hourly rate)*(expected hours worked + expected paid holiday hours)/(expected hours worked), meaning it's slightly in the favor of the worker/contractor.

Are there any hidden disadvantages to the employee, when accepting this increase in exchange for paid days off for vacation holidays? For example, is there a difference in how taxes are calculated/paid, higher insurance rate, etc...?

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    Aside: Contractors don't typically get explicit vacation/holiday pay - they get a rate for hours or days worked - and they're not typically called "employee", either. I'd be careful here and make sure it is clearly a contractor/client relationship being established, otherwise the tax authorities may suspect the relationship as being employee/employer and cause a headache for both parties. Jan 29, 2011 at 1:32

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This sounds like it makes no difference if you behave in the same manner (i.e. take the same vacation time).

For example, say you work 1 hour and take 1 hour of vacation and the current hourly rate is $1/hour. You would make $2.

Using your formula, new rate = 1* (1+1)/1 = 1*2 = $2. So they would pay you $2 for the hour you worked and then you would take the 1 hour of vacation with no pay.

If you plan on taking LESS vacation than used in the formula, you make more money. If you plan on taking MORE vacation, you make less money.

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  • I suspect this offer will come with a request for work ignoring traditional time-off. I'm trying to assess whether it's fair, though - are there any hidden costs I should worry about? Jan 29, 2011 at 1:09

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